Budget 2009 - furnished holiday lets

Whilst the rental of property is not a trade, landlords involved in the commercial letting of furnished holiday accommodation are afforded various tax reliefs as if their activites were trading.  The rules are currently found at ITTOIA 2005, s. 322 for income tax payers, and CTA 2009, s.264 for corporation tax payers.

The nature of holiday accommodation is sometimes, but erroneously, taken to mean properties in holidaying locations, be it on the coast or at ski resorts etc.  This is not the case and, hitherto, those properties at any UK location, and which meet the relevant criteria, can qualify.  This has included a significant proportion of properties in London and, to a lesser extent, in other cities, which are rented to tourists and temporarily visiting workers.

From 22 April 2009, the rules are extended to those UK landlords of properties which would otherwise satisfy the relevant criteria, but are situated elsewhere in the EEA (the rest of the EU plus Liechtenstein, Iceland and Norway).  

The reason givien for the extension of the rules to these properties further afield is apparently so that the UK does not breach EU discrimination principles, but this is somewhat flimsy.  We can find nothing in the way of an EC decision etc., which supports the assertion and the UK has not previously been overly eager to correct discriminatory legislation.  

We do wonder whether someone is hoping that, with the Euro being strong against Sterling, UK owners of overseas holiday properties might be tempted into selling up and repatriating the proceeds back into the UK property market.  If so, it is difficult to see that the CGT roll-over advantages are going to have much effect, and certainly where the second country will most likely have primary taxing rights.  Perhaps, the announcement of another disclosure facility might also need to be added to the thinking ?

In any event, the extension will be short lived because the entirety of the rules for commercially let holiday accommodation is to be abolished on 5 April 2010.  Again, the government has not been explicit in its thinking behind the change and it remains curious that one of the more benign areas of residential property tax law should be singled out for special treatment when there so many other more obvious candidates which could have been picked on for a major overhaul.

In brief, a property qualifies if it is available to let, furnished and on commercial terms, for at least 140 days in a relevant period (being usually, but not always, a tax year), is actually so let for at least 70 days and not continuously to the same person for more than 30 days.

Once the renting of the property qualifies as furnished holiday accommodation, the owner can claim capital allowances, relief for pension contributions based on rental profits. and relief for rental losses against other sources of income.  Additionally, the landlord is entitled to capital gains tax entrepreneur's relief, hold-over and roll-over reliefs, and SSE, none of which are available to the landlords of other properties. 

The planning opportunities in the limited window from now to 5 April 2010 may prove very attractive for those landlords who are in a position to take advantage, and to undertake capital improvements which will attract capital allowances etc. 

Landlords of foreign properties where, traditionally, rental losses may typically been rolled forward only, will have the opportunity now to claim those losses against their other sources of income.  Claims against general income for past years, the earliest being the year ended 5 April 2007, can be made by not later than 31 July 2009.   Claims for other reliefs will fall to be considered under the rules applicable to the particular relief.